Ep. 586 The Facts About The Bitcoin ETF Launch with Bloomberg’s James Seyffart
Ep. 586 The Facts About The Bitcoin ETF Launch with Bloomberg’s James SeyffartPowered by RedCircle
In this episode of Crypto 101 we have a very special guest, James Seyffart, who is a leading voice on the Bloomberg Intelligence ETF Analyst Research Team. Now if you are not following him on X (FKA Twitter) check out his link below because James is a leader in sharing all things ETFs but recently has been a go to source for the Bitcoin ETFs. He was one of the first to call for the Bitcoin ETF approval months back and has been spot on with his predictions and coverage through the launch of the “Cointuckey Derby”. In this episode we break down the Bitcoin ETF launch, the current and future outlook for the Bitcoin ETFs, and how this approval can lead to the growth of crypto in traditional finance as well as lead to the possibility of more opportunities in the future.
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SPEAKERS
Brendan Veihman, Bryce Paul
Bryce Paul 00:09
All right, everybody. Welcome back to another episode of the crypto one on one podcast. I’m your host Bryce as always joined by my notorious co host, Mr. Brent V man. How’s it going, buddy?
Brendan Veihman 00:18
No, Bryce, it is going good, but we can’t ignore what’s happening in the markets. So today, we brought in a specialist, someone I am very excited to talk to. Matt right, Bryce?
Bryce Paul 00:29
Absolutely. Somebody who absolutely made a tidal wave on the scene. Mr. James safer, who is the ETF analyst at Bloomberg intelligence. Joining us today, James, how are you doing? And thanks for coming on.
00:42
Hey, guys. Yeah, thanks for having me. I’m doing pretty good. Can’t complain too much.
Bryce Paul 00:46
Yeah,
00:47
it’s been a whirlwind last couple of weeks, a long, long few days, I guess I would say I was hoping it’s slow down. But it hasn’t really slowed down too much yet, but it’s a little bit better than it was the week of launch.
Bryce Paul 00:59
And I just feel like you know, probably ever since June 15, your life got turned upside down. You know, tell us about the catch us up the past six months, you go from just you know, a normal ETF analyst to Bloomberg intelligence, crunching the numbers seem to see all of a sudden black rock hits the wire. And they say we’re launching Bitcoin ETF. What goes through your mind?
01:18
Yeah, so I mean, honestly, even before that, I was covering this whole thing back to 2017. So like, this has been an area of coverage or mind and interest for mine for a while. So I was covering all of the failed attempts over from 2017 till 2021, when grayscale was ultimately denied. So I’ve been covering it for a while, but I was actually when Blackrock filed I that I was actually my girlfriend moved to St. Louis. And we were actually like driving, like the day before. I was driving our to St. Louis. So I literally, I was supposed to be off on vacation. But I did at least I don’t even know how many Twitter spaces and podcasts and like, tons of client calls who are like, what are the odds of this actually happens and we’re so I literally spent like, two days of driving and the whole time like a staggering majority of it. I was like talking to clients and people about this. So she was not too happy. But it’s been a whirlwind ever since. And we’ve been fortunate enough to be right on on our calls on that front, at least. Yeah.
Bryce Paul 02:13
And you’d like you said, You’ve been doing this since 2017. And I really saw you blow up on the scene kind of around the past six month period. And I’m curious, like, when you are giving all this intelligence at Bloomberg, you’ve got clients or these, you know, other hedge funds who are like looking to you and saying, Hey, we want to trade the market. You know, tell us your odds are like who hires you? Yeah,
02:39
I mean, well, like so our the way that Bloomberg intelligence works is like our research is behind a paywall. Essentially, we’re all on the Bloomberg terminal. So if you pay for Bloomberg terminal, which most of the traditional financial world those hedge funds, traders that you’re talking about, they have access to any any research that comes out of Bloomberg intelligence. So we have equity stock analysts, we have equity strategist, commodity strategist, rate, strategist, credit strategist, you name it. So when my area is specifically ETFs, or the asset management industry, so we cover mutual funds and ETFs, mostly because they’re public. And you can see a lot of the data but we do a little bit of coverage of like the hedge fund world too. But most of the clients I’m talking to it runs the gamut. So I’m talking to hedge funds that are literally trading this in the their actual portfolios. People trying to understand what’s happening in the space. A staggering number of people that I talked to are like their day job is more dealing with bonds or equities or something like that in their personal portfolio. They’re asking me questions about what’s going on here. So that actually is not it’s not uncommon for us specifically, because like I said, we’ve covered ETFs a lot of people just use them in their personal portfolios to get exposure to the markets. So it’s not unusual to have somebody who’s like maybe trading meeting bonds asking us questions about ETFs but this particular topic, what has blown up and I’ve had never had more client interest in what we’re covering and what I’m talking about them then the Bitcoin ETF saga. Yeah,
Bryce Paul 03:58
it’s crazy that I mean, just the amount of interest that it’s gotten this Bitcoin ETF, BlackRock, fidelity, Wisdom Tree, all these big names, they now kind of legitimize crypto and kind of bring it into the same sphere as the traditional world and and that’s kind of where you got your start. I’m curious, like, you know, at what point did you make the I know, you said, 2017 You’ve been tracking it, but at what point did you become maybe, you know, a skeptic, just in the traditional financial world. You know, maybe it’s Bitcoin just not a real thing to then you became a full on believer.
04:31
Yeah, we’re gonna go all the way back. I actually got to go into the I went to the college in New Jersey, and I graduated in 2014. But my freshman year, my suitemates downloaded Bitcoin mining software onto my laptop in 2011, spring 2011. So that was my first experience with it. And I’m convinced to this day that that crashed my laptop. Lost that that hard drive, I lost like a 12 page paper was a nightmare. I’ve told this story to other places, so I apologize if anyone’s heard it, but that was my first Hearing and I was like, this is stupid fake internet money and and then I didn’t really start taking it more seriously until I was at a traditional financial conference for Morningstar, which are one of our competitors. And Cathy Wood, who runs Ark investments was giving a speech on a coin and a white paper they had just wrote about it in early fall of 2016. And that’s when I started paying attention again, and really diving in into early 2017. Ish. And then when I joined Bloomberg intelligence, which is Bloomberg research arm, like I said, this are all of Bloomberg intelligence, where you’re, there’s 300 400 different analysts that cover different parts of the market, individual equities and rural stocks, you name it. My area, again, is asset management. But when I came over, I reported to two people I reported to Mike McGlone, who was a commodity strategist and recorded the bell chinos who’s my Boston colleague covering the ETF world. And on the commodity side, he was like, September ish of 2017 or October where things are, I don’t know how well people remember that. But that was when things were going crazy with Bitcoin. It was like trading it like it was a headband, it was a big deal. It was trading at like, $3,000 earlier in the year, and this thing just started skyrocketing. He’s like, we need to start covering this from a commodities perspective. Do you know anything about this? I was like, ah, actually, I do. And my colleague at my other colleague at the time, who was also very interested in personally went on to he helped us bring up the coverage on that front. But he actually went on to found out Delphi digital, which is a big player in the space. So I have a lot of my colleagues in Bloomberg intelligence for Bloomberg in general, are actually founders at Delphi digital now, for anyone who knows who they are. So yeah, that was that was the initial coverage. And then obviously, the fact that I was covering ETFs in the asset management industry, and covering Kryptos from the commodity strategy perspective. These types of funds, the grayscale trust, these ETFs these exchange traded funds fit like squarely in that overlap those overlapping circles in that diagram, the Venn diagram,
Brendan Veihman 06:51
I mean, James, like you said, this has been something that has been in the works like you specifically have been working with this thing since 2017. Now pushing six, seven years, but like for the people who are out there listening what goes in to a successful ETF launch and why does that matter for Bitcoin?
07:11
So there I literally couldn’t sit here and tell you what goes into it. I’d be we’d be here for the entire podcast. But there’s there’s a lot of things that go into it, I’ll just say so you gotta realize like people have been trying to get this thing production I mean, the Winklevoss filed initially, in 2013, when Bitcoin was under $100. To be fair, that initial initial application was never going to be approved. We don’t need to get the details of the weeds why, but I think from about 2020 Onward, the applications probably should have been approved if the SEC stuck to the normal standards, possibly even slightly earlier. That said, there’s a lot of lawyers that go out on the back end, there’s a lot of salespeople. So there’s what the wholesalers are the types of people that work at these asset management companies and try to sell to larger institutions or advisor networks. So advisors are the people that like if you hire somebody to help you, with your manager, personal portfolio, or your certified financial planners or what have you. So these wholesalers would go to them Be like, look at our funds, these are what we’re trying to sell. So that’s part of it. But you need a whole bunch of other things to come together at the right time, you need to have a decent track record, in this case, because tracking asset how well is it tracking the asset? How much assets do you have? A lot of times it’s like you need to have a certain level of assets before I’ll put my clients money in there, you need to have a track record, how long has it been existing, and they do a whole bunch of due diligence. So there’s a whole long process that needs to happen before a lot of these bigger institutions are going to buy and really build up. But we’ve already seen in the first seven days of trading, this thing is traded almost $19 billion, which is immense liquidity that’s almost institutional level liquidity on multiple products. There’s billions of dollars in these things. There’s a lot of money shifting around, there’s a lot of recycling of money from grayscales GBTC. And to some of these we call the other, there’s 10 ETFs. At launch, we call the other nine, the newborn nine because we’re trying to separate out like what’s going on with greyscale gets greyscale basically came over as a full grown adult, they had $28 billion in assets, they were trading a couple 100 million dollars a day. So that was all important. So we’re trying to see how the race is playing out with the other contestants in the race, if you will. But there’s a whole bunch of education also goes into it. You need to make sure you’re educating the masses on like how these things work. And, yeah, there’s a whole there’s all these different levers that they can pull fees are obviously important to many, many investors, but so is liquidity and trading spreads. So there’s a lot of different things that can go into making these competitive but what’s unique about this situation that we’ve never had 11 ETFs or 10 ETFs at the same exact time launch virtually is functionally identical products competing with each other so there’s a whole bunch of like, it’s like a case study for us ETF nerd trying to figure out like what actually matters and what people are drawn to. So yeah, that’s there’s a whole I could keep talking but I’ll stop there because I just go down a rabbit hole.
Brendan Veihman 09:53
Well, no, I think that adds a lot of clarity. I mean, a lot of people are out there and wondering like, you know, what’s the Big deal with the Bitcoin ETF. And you just said what like, it’s not an easy feat to get one of these published and approved, you know, let alone the sheer transaction volume that’s accompanying accompany this. And all of them getting approved pretty much at the exact same time. It’s just, again, its own milestone in and of itself. So now that we have it behind us now that the Bitcoin ETFs have been approved, you know, what would you say kind of came from that launch? Would you say that it was overall successful? You know, Did anything surprise you about it? Did it go exactly as planned? You know, what was your perspective of it?
10:34
I would say it was a very successful, I was always worried about the liquidity and the liquidation overhang from GBTC. We knew that a lot of low bankruptcy estates, a lot of big institutions had serious money tied up in GBTC. And we’re not going to sell until that discount was gone. So GBTC used to trade at a 50% discount to its underlying values. So basically, like if bitcoin was trading at $10,000, you had to sell your GBTC shares for the equivalent of $5,000. For some, in some cases, now that discount is virtually zero. So anyone who had money tied up in that was never going to sell while the discount didn’t exist. And the ETF wrapper itself, is what makes these things super efficient, because you can create new shares or redeem shares on a daily basis, which we can get into in a little bit. But really, it’s been it’s been very successful. Obviously, there’s still time to figure out I’m more focused on the 12 to 18 month I know most people are like, Oh, what’s going on right now day to day? We have no more data now. Yeah, exactly. People People are looking at the price and freaking out about what’s going on. But they’re just part of the ETFs are just part of the market, right? Like they are not granted they are a big slice of the pie now, particular trading volume and, and actual Bitcoin that’s stored, but for the most part, it’s like the ETFs are big pieces of pie for the entire market, whether it’s equity or bonds, and like, you don’t look at the flows into equity ETFs and be like Why? Why are flows coming in, but the stock market is going down? Like that’s just people need to realize like they’re just piece of the pie, right? So if you look at like Bitcoin futures, which are during the derivatives of Bitcoin futures that trade on the CME, I mean, the, the open interest for the amount of dollars invested was down $1.7 billion since launch. 130 plus 1000. Bitcoin, that technically had exposure on the futures are just gone. So a lot of people were buying these things in approval in expecting an approval in ETF approval. So there’s a lot of just unwinding of those types of trades. But overall, there’s been a lot of liquidity, the spreads have been tight, the discounts and premiums are compressing. Everything has been moderately successful. That said, the one thing I’ll point out is the most recent data we have from greyscale is a GBTC, is they had a $640 million outflow, which is the record daily Alpha we’ve seen from them, but for so far, for the most part, we’re still net positive, about $1.1 billion on the spot ETFs. So money in aggregate is still coming into the space now it remains to be seen if that can continue. If grayscale continues hemorrhaging money, but we’ll be watching. And,
Bryce Paul 13:07
and I want to know, like, you know, how did the market participant kind of nature of crypto change with this ETF? Like, is this a paradigm shifting moment? Because there’s a new subset of buyers, and if so, who because I know, like each, like hedge funds, probably aren’t really buying the ETF. They’re comfortable enough, you know, holding their own wallets, you know, high net worth individuals, maybe not buy the ETF because they can, you know, start up a Coinbase like who’s really buying these things. Really
13:39
anyone, like that’s what makes ETFs the, in our view, the best like, we’ve referred to it as a technology, it’s really a wrapper, but it’s the best wrapper the out there for investing in pretty much any asset you can think of. So the benefit of the ETF is like everyone’s playing in the same pool, right? Like you don’t have hedge funds with special special abilities to do certain things or cheaper fees. You don’t have high high institutions or high net worth individuals that get beneficial treatment, like you or your grandmother are playing in the same pool and getting the same deal as the hedge fund on Wall Street, right? Like so. spreads are tight. There’s no Commission’s mostly on these ETFs depending on where you’re buying them. And the fees are being driven down very low. So who’s buying them? So the one thing that often get asked is like, how like this is going to be great because it’s open up people to investing for the most part, retail people. Will these your audience like if they really wanted exposure to Bitcoin, they could have tolerated Coinbase or Kraken or hopefully not FTX or something along those lines, right. Like they’ve had the ability to get access to this. What this really opens is people who didn’t want to go through that process one, which I if you really like I said if you really wanted exposure you haven’t already. But if you’re just thinking like what like a lot of people are thinking I want to put like 2% of my portfolio in this maybe 5% It’s way easier just to buy this ETF in your traditional brokerage account, particularly if you’re using it self directed IRA, like a tax advantage account in the US, this just makes it easier. Institutions, a lot of times they aren’t allowed to invest in these types of things like Bitcoin specifically, and putting an ETF wrapper would mean that a lot of institutions can actually hold this if they really wanted other ETFs other mutual funds. Now, if they couldn’t hold Bitcoin before, they can now do it in the most efficient manner, which is the spot Bitcoin ETFs. But the real, the real people buying these things, in my view, over the long term, the real addressable market that’s expanded here is advisors, this people I was talking about, because in many cases, they work they have like platforms that they’re associated with. So they have people that do the backend work, the the back office type stuff, maybe even middle office stuff. And then they have a platform where they can buy these things through them, whether it’s UBS, Merrill Lynch, you name it, right? Like, they have all these different Morgan Stanley, like, there’s, they use them on the back end of what they’re trying to do, there are some smaller independent RAS that might be have buying this already for their clients. But for the most part, some of them even had like, exposure to be able to get these things get exposure to Bitcoin, if they wanted via something like a swan or galaxy, or onramp, where they can basically tie into the back end. But that’s like, a whole bunch of other hoops that you have to jump through a lot of extra work. And if you’re really thinking about putting this in like 2% of your portfolio, something like that, or 5% of your portfolio, do you really want to be spending a significant chunk of your time on a regular basis, like setting all this up? Or is it just easier to pay the 20 pips fee, which honestly, right now, it’s a 0% fee, which might be cheaper than a lot of those offerings had in the past anyway. And you just have to do it on the traditional rails, like the original financial rails that you’re used to using as an advisor. So this just makes it way easier for them if they want exposure. So we think there’s going to be a decent advisors who, for a subset of their clients will go this route that would not have gone any other way to get exposure to the asset class.
Bryce Paul 16:58
Yeah, it sounds like the doors really are blown open and, you know, short term fluctuations, they’re going to exist, but long term is like what you mentioned, were you focused, I’m kind of just curious. Give us some context for like how you’re expecting flows over the next like, I think you said 12 to 18 months is kind of what you’re looking at, how should we think about how much these things are going to have under management annually. So
17:23
it’s hard to know I’m gonna give like an AUM prediction really, or I think 50 could be somewhere but the problem with AUM is, it changes with two things right flows that could those creations redemptions, I was talking about money coming in or out, that’s organic demand, right? That’s either people leaving or people coming in, that’s easy to see that happens on a daily basis. Assets can change with two things, it can change with flows, but also appreciation or depreciation of the asset. So if bitcoin goes up or down, the Aum is going to move with it. So it’s harder to pick AUM, particularly with something as volatile as Bitcoin. So our prediction really was in the first year we thought 10 billion might come in to these ETFs on a net basis. But again, that’s like just strictly looking at flows and organic demand for these products, and we’re not going to make any price predictions. I honestly, even if I could I want a metal I’ll do Interior, if I could I probably wouldn’t. So I did that answer your question. What was the?
Bryce Paul 18:18
Yeah, $10 billion of inflows into these things over the first first year? Kind of sounds about right.
18:23
And oh, yeah, let, this is the other part of what I was saying. So those platforms I was talking about, and I’ve hinted at this, they have like requirements, there’s teams that do due diligence, they understand how all these work on the back end, they’re trying to figure out the differences between the different ETFs that try to make sure that certain levels of different things are met. And the way a lot of these platforms work is like, you don’t just launch an ETF and it’s automatically allowed to be sold to advisors, advisors can just click Buy for the clients. In many cases, it’s the exact opposite. Once it’s launched, it has to go through a process before it can be bought. So there’s usually like a waterfall list of like, you can buy this no questions asked, just hit Buy, or like maybe have to jump through some hoops. And then new stuff for the most part is on this note, do not buy lists where you cannot buy pretty much under any circumstances. But if there’s clients asking for them doing different things like that they can get through different loopholes. But for the most part, the real goal for a lot of these ETF issuers is to get these ETFs on that that green light list where basically anyone can just click Buy, but there’s a lot of these platforms that will not allow that, and it will take some time before they do allow these ETFs onto that onto that list, I guess. Yeah,
Bryce Paul 19:28
no, I definitely know Vanguard isn’t allowing the Bitcoin ETF because it doesn’t kind of share their whatever philosophy about cash flows only and, you know, how should you know how should us at home kind of think about that? I mean, I guess there are free or free market company privately, whatever, they could do whatever they want. But how do you kind of think about that? Do you think that’s a misstep? Do you think that’s kind of the right move for their business? Yeah,
19:54
so I was actually so two things. One, I constantly get asked is Vanguard going to launch one and my answers always no no shot. They don’t even have a gold ETF, like you mentioned they want cash flows. They don’t they don’t believe in financial assets without cash flows. Otherwise they’re just a commodity and it’s only what the next person will pay for it. That is Vanguards ethos. So I never thought they would launch a Bitcoin ETF. That said they do allow the buying of gold ETFs on their platform. So I was a little surprised that they decided they weren’t gonna allow people to buy the crypto despite crypto ETFs on their platform, particularly because initially they were allowing people to buy the Bitcoin futures ETF, which is an arguably less efficient version that said, this isn’t the first time they’ve done something like this, like you can’t buy the 3x leverage gold miners ETF or natural gas ETF like they have restrictions on when you can and can’t buy on their platform. So it’s not it’s not the first time they’ve done something like this. And the other part I would say is Vanguard is the one that’s slightly different from all the other platforms I was talking about. Vanguard typically, they just add whatever’s you can trade, you can trade, whatever kind of similar to a Schwab or fidelity or whatever platform you typically use. So this was a little surprising. But the other ones like I said, the default is you can’t buy this until we approve it, whereas many other places operate under. You can buy this unless we don’t approve it. So Vanguard usually operates on the ladder, but they’re not on in this case. And And honestly, it it kind of goes against their ethos. So it’s not that surprising. But we’ll see how it turns out, I don’t think there’ll be, they might change their minds at some point in the next year or two. But even even if they don’t, I don’t think it’s going to be that critical of a situation. If anything, it might might draw more attention. Because it’s like, oh, you can’t have this. And it’s like, oh, now I want it and I’m gonna go somewhere else to get it. But we’ll say,
Brendan Veihman 21:41
Yeah, James, you mentioned the leverage. And something that we’ve seen floating around out there is that there could be options on a Bitcoin ETFs coming our way in the future. So I guess how likely is it that we’ll actually see these things? And what would that mean for the market and its entirety. So
22:00
typically, when an ETF launch happens under a normal ETF, you can just add options almost immediately, Fitow the Bitcoin futures ETF launched, and then had options very quickly. This is a different process and as to kind of go through the same process that the ETS had to go through. It’s called the 19 before process, and there’s all these deadlines and delay periods, but at the end of June 40 days yesterday, yesterday, approve or deny, our expectation is they’re just going to approve these things to have options at some point in the next month or so. Time will tell. So it could happen within the next month. Otherwise, it’s probably I think the I think the end of September is the latest, they can wait now for a lot of these things to add options. And that will add leverage a little bit to the to the system, I guess for sure. Traders, like they love volatile assets and trading trading options around them. So that’ll just bring more liquidity to the space and these ETFs in general. So yeah, I think, like I said, I think it could happen within the next month or so.
Bryce Paul 23:00
And kind of with that, like what else can we expect in terms of maybe even new crypto related ETFs? I think I saw like a Bitcoin covered call strategy that’s going to be launching as an ETF was was that
23:15
right? It’s already launched? Yeah. Round Hill, Round Hill launched it. Yep. And
Bryce Paul 23:19
kind of what else should we expect? Like, is there any any other crypto related ETFs on your Horizon? I mean, Aetherium ETF is kind of the low hanging fruit, I would think but anything else?
23:30
Yeah, so why BTC is the Round Hill Bitcoin covered call strategy ETF, so they’re gonna use futures and do cover calls to kind of generate income. I think there’ll be other ways to kind of generate income and do different things with derivatives around Bitcoin, no guarantee. Seven RCC is another company that was trying to launch with this first wave but couldn’t get out. They are going to offer exposure to spot Bitcoin and carbon credits. So for anyone worried about the ESG concerns around Bitcoin, basically an institution combined this and be said, because you’re gonna have offsetting positions to using carbon credits for the Bitcoin that you’re holding the CTF is the theory. So I think that’ll launch in the coming months, maybe even month, I have yet to see any movement on that. But it theoretically could come sooner, because the SEC has already approved a bunch of these other things. So that will be one that we’re watching. I’ll be interested to see if they figure it out other ways to basically lend out the underlying Bitcoin and earn income. Obviously, some people here in that are going to be like ripping their heads off. But some people are like, No, I like the idea of generating income because it’s pretty standard when you’re doing it with equities or bonds. What have you. That said under the current structure, grantor trusts like the they can’t lend out the underlying assets. But I wouldn’t discount these really smart people in the ETF industry to figure out loopholes and workarounds to to launch such products. And as you hinted Aetherium that’s the next one up on our list. I think they have a deadline in May 23 May 24. My view is we’re around 65% that we think that There was we’ll get approved, no guarantee, Gensler could basically just keep pushing, kicking the can down the road force things to go back to court and basically eventually end up at the same situation they’ve ended up at with the Bitcoin ETFs, as far as I’m concerned. So ultimately, we will get Neith ETF in the next year or two, I think. But anything else aside, like as far as other assets? My view is, it’s just a theory, I mean, then nothing else because the the process we have gone for Bitcoin was the futures launched, then we had futures ETFs. And now we have the spot and we have the same thing for Aetherium. There are no other futures, the SEC is calling a lot of other digital assets securities in the Coinbase lawsuit in their crack and lawsuit, and other lawsuits. So my view, personally, is that they are kind of pivoting away from going after Bitcoin and Aetherium. And focusing there, basically, I think they will approve them. No guarantees. Like I said, our odds are nowhere near the 90% we were out with Bitcoin ETF. So take that with a grain of salt, but we think that’s the path of least resistance and where they’re gonna go. And I think they’ll approve those spot ether ETFs. That said, there are differences with staking versus proof of work and a few other things. There’s a lot of minutia Manouche, there’s a lot of minutia and the differences between Bitcoin and Aetherium that UFC will have to get comfortable with, but I think they’ll approve them and then continue to wage war on the rest of the industry, in the courts. But yeah, yeah,
Bryce Paul 26:21
no, I mean, there’s a couple avenues. I want to go down there, because I know one of the other guys that you work with, I think Elliot Stein, he’s been tracking the coin base. He’s, he’s the lawyer analyst, tracking the coin base support giving Coinbase pretty high odds of beating the SEC, or getting this, you know, at some level dismissed. But I’m curious, you know, going back to the SEC, why, you know, what’s the difference here that they care so much about between the commodity ETFs and the security? ETFs? And, you know, how does Bitcoin kind of, you know, play as only a commodity ETF? And will there ever be security Bitcoin? ETFs. So
27:06
not really, that’s, that’s really in the weeds? Sorry, no worries. Can you can you can you ask it again, let me let me think about it real quick. Sorry.
Bryce Paul 27:19
Yeah, I guess, I guess I’m just thinking about like, you know, Bitcoin is a commodity ETF right now. And they’re saying that if you wanted to have an Aetherium, like staking ETF that would automatically make it kind of like a security. Right. And so will will there ever be, you know, security ETFs that hold crypto or will they all just have to be commodities? Yeah,
27:41
so it’s it’s nuanced, right? I don’t think that necessarily, that would be the case that it would be a security, if it uses staking, like, that’s not my view, we have we have ETFs that have Aetherium. And do staking in Canada and in Europe. That said my view I like I said, I’m pretty I was positive I was pro the ETFs being approved this year. I would be shocked if the SEC allows them to do staking. So it’d be an inefficient vehicle for getting exposure, because I I would be surprised if they let these issuers do staking, but only time will tell. So that’ll be something to watch. But yeah, you basically need a market structure built to like answer the questions you’re asking for the most part. I mean, theoretically, if there’s a market structure, but when they say these, these digital assets are securities, you could easily just have an ETF and the underlying asset is accepted as security by the SEC, CFTC and the industry then all of a sudden, you have an ETF that holds an underlying digital asset security. So that would be pretty standard. As for so we basically need I mentioned like the path for the Bitcoin ETF and then I said like you kinda could have that path for Aetherium. There’s nothing else out there right now that could follow that path, but the only way would be definitive court cases in the highest courts in land. So ripple could be heading there potentially, but even then that’s years off as far as I’m concerned. So maybe you could get some other assets that are deemed to not be securities by the SEC and then you could get an ETF possibly maybe even then probably not because one of the reasons why the futures are important is because the SEC needs a regulated market to basically surveil and look for any wrongdoings or and stuff like that. So you basically need futures or a regulated exchange to come into the SEC and share their data before they’d allowed anything to happen. So there’s a lot of different things that we need to happen before we get an ETF which is why I think we’re so far off from anything aside from the theory I’m at this point
Bryce Paul 29:36
all right, and hey, like you know, we had the big build up it’s been really active with the Bitcoin ETF now that like, right you’re you’re the ETF specialist. You’re not just like the Bitcoin ETF specialist so your job like you have met hundreds or 1000s of other ETFs you have to cover you got to get back to work to these are kids you’ve maybe been neglecting for the last six months. Now that this is launched. Do you stick around in the crypto space? Are you staying as active Are you going back to traditional kind of tracking and analyzing.
30:04
So it’s funny, I actually have been like building essentially a tool, tracking the entire asset management industry for ETFs mutual funds in the US. And I started working on this before I even came to Bloomberg intelligence, like fixing a lot of the data issues. I came from data in Bloomberg doing the backend stuff that we’ve kind of hinted at here. So I’ve been working on this since 2016, we have a tool that we’re probably going to be launching this month, we’re demoing it to clients now. So I’ve always I’ve continued doing stuff that’s outside of this, but the vast majority of it has been covering this. But we’re not going anywhere on this topic. There’s still a lot of questions, a lot of things to cover. And like I said, this is kind of like a case study. Because even if you don’t care about the underlying assets, specifically, the fact that we have 10 ETFs, launching competing with marketing and fees, cutting, looking at liquidity and seeing who can get assets, it’s fascinating to cover. And then also we have the Aetherium filings to cover. So that’s that’s not going away anytime soon. So for the foreseeable future, we’ll stay here and then I guess we’ll we’ll have to see what happens as far as the courts go, or Congress even getting rules out there. So I’m lucky enough to have colleagues that are lawyers and litigation analysts. So they’ve helped me with the greyscale case, they’re helping me cover what’s going on with with Coinbase. And understand. So we have a team of people who cover both, like some of these stocks from an equity analyst perspective, some of the stocks from a credit analyst perspective, I have a policy expert who’s down in DC, who knows how, like the ins and outs of Congress and how these different administration’s work and, and different agencies. So like, I’m fortunate enough to like, yeah, we’ve had a lot of recalls, but there’s been a lot of people helping us in the back end, confirming our beliefs or explaining different things to us on what’s going on. So that way, it will, it’ll probably die down, it’ll go lower than the activity that we’ve seen, but it’s not going anywhere, anytime soon. Yeah, and I
Bryce Paul 31:55
was gonna say just like, lastly on on, like, last thing on crypto, before we move on to the other stuff, you know, does crypto ever eat finance entirely? You know, Marc Andreessen is kind of thing about you know, software eating the world will Kryptos financial software, eventually, all of software or all of the markets are going to be some type of blockchain or crypto, do you kind of believe that future? Ah,
32:20
I feel like it’s way farther off than people are making it out to be in many cases, I think it’s possible, I think tokenization of tons of different things is likely to happen, just because of the efficiencies which we’ve seen people complaining about. Like the lag and seeing, like, literally just flows, but also like there’s, there’s always going to be overlap here. So I’m probably I’ll take the under some of that, but I think it’ll happen on the fringes. And it’s already starting to happen with with some funds. We’ve already seen money market funds and things that are like operating on the platform on the on different blockchains to like keep track of who actually owns the shares rather than companies doing it. So WisdomTree is experimenting with that Franklin has experimented with that they were the first ones to do it. So there’s a lot of things like that where blockchain tech will come into the tread by space. But yeah, I don’t really have like a super strong view on like, what’s going to happen with the tokenization of like real world assets and how big it’s going to be. That’s veering a little bit out of my expertise. I obviously know about it and listen to it and talk to people about it. But I wouldn’t consider myself an expert on that topic.
Brendan Veihman 33:23
So aside of crypto specifically, are there any other like interesting trends that are happening in the world right now that like you’re paying attention to? Too many to count, right? We live in an interesting time right now we really do. I mean, obviously,
33:42
AI GLP one drugs, stuff like that I’m paying attention to like, I listen to a lot of macro and just broader financial podcasts and things like that. One of the areas in the ETF world that I very focused on or tangentially focused on his, the structured product ETFs, where they have like guaranteed buffer protection on the downside, and you have capped upside. So you might be able to you can get up to 50% return and in return, but if it goes above that, you don’t get any more. But you’re also protected on the downside, and that’s one of the fastest growing areas of ETF market. I mean, we’re covering I cover everything in the asset management space to be. To be fair, though, the last month and a half has been very, very focused on what we’ve been talking about. So like my brain is definitely a little atrophied on some of the some of the more basic things that we could be talking about.
Bryce Paul 34:33
Ya know, I’m excited about things that are going on in crypto and you know, it especially when you marry it with ETFs because crypto is kind of like what I view is like, you know, maybe one of the fastest growing asset classes, but also ETFs I see are, I don’t know if you could call it an asset class, I guess a vehicle and investment vehicle. They’re like the fastest growing investment vehicle I see. They’re gobbling up all this market share for mutual funds. Can you give us some numbers some context around like how big the ETF market has become, how quickly and kind of where it’s going. Yeah,
35:05
I mean, in the US alone, it’s the largest market by far, but there’s over a trillion dollars and ETFs. And in, in the mutual if you compare that to like the mutual fund world, they make up around, what’s the number ETFs are roughly or actually I have the number in front of me 30% of the total pie for mutual funds and ETFs together. So our prediction is that ETFs will be as big as mutual funds. By the end of the decade by the end of 2030, we think so basically, the ETF wrappers we viewed as a technology, it’s kind of an analog technology, but it really is the best way to get exposure to markets and plenty of different asset classes. So what like if you look at so excluding money market funds, which have about a little less than 6 trillion in assets, right now, you have about 24 $25 trillion in in mutual funds and ETFs that hold any gamut of things, mostly, it’s equities and bonds, but it also includes now Bitcoin ETFs. So that’s how big the the piece of the pie is. And then if you take a bigger step back to some of those advisors that I was talking about, if you look, it’s really associates estimates, they say that like advisors, those people brokers, the platforms, that independent advisors, they have somewhere around 30 Plus trillion dollars in assets. That doesn’t include like some brokers and different things like that. So there’s a lot of money sloshing around in this space. So even just taking a small slice of those pies, could be meaningful for some of these assets and Bitcoin. Yeah,
Brendan Veihman 36:42
I mean, when we’re looking at the long term, James, like, what are some of the most important demographic shifts that that you analyze? When you’re looking at? Maybe where to invest your money over the course of the next 30 years or so?
36:55
Yeah, I’m pretty basic. I do pretty much like the Vanguard Bogle type strategy at all whether, yeah, exactly. Actually, it’s way more equities than that, because I’m only 32. But But, but for the most part, I it’s just set and forget, I’m also not allowed to, like trade these things, I have to go through compliance if I’m gonna buy anything, even an ETF. So like, I’m very restricted from being active in any of my investment decisions. And honestly, it’s helped me because I just basically put money into my 401 K and Ira and set it and forget it. I have some stocks here and there that I’ve bought and played with,
Bryce Paul 37:33
I would imagine, it’s kind of like an ironic curse, like the guy who knows the most about the market. Like knows where all this gets going. It’s so close, but he can’t actually utilize it. But you can’t mean you get paid to do it and give the intelligence to a lot of other people. But yeah,
37:50
I’d be I’d be very biased. If I was able to do that. Like I believe me, I tried to find a way to buy GBTC when it was at the massive discount, and that was not allowed. So you couldn’t take advantage of my call in any way whatsoever. So that’s been left to get everything right.
Bryce Paul 38:07
Ya know, on behalf of myself and a lot of the community we thank you for sure. Because we all definitely profited a lot in q4 and it was crazy. Um, you said you listened to a lot of podcasts. I kind of would love some shout outs. I’ve been running dry on some material. What are some of your favorites that you listen to? Oh,
38:28
I wish you had given me time to I really do listen to like a lot. We have our own podcast trillions. iTunes does that and that’s mostly just about ETFs but we’ve done a bunch on on Bitcoin and crypto in general just because that’s where a lot of interest has been. So I listened to so many other if I had throw other ones out there I’d listened to Laura shins unchained a lot I’ve Peter McCormick and what Bitcoin David Peters great lord is great. I listened to Galaxy brands with with Alex Thorne. Odd lots isn’t it is one of the is a podcast within within Bloomberg that I listen to. And then we also have a Bloomberg intelligence has her own podcast fic focus, which is honestly it’s more geared towards the traditional financial world so it will be probably won’t be that interesting to many of your people on the brink with Nick Carter match walls. I listened to a lot. He’s Frank reparo I’m good friends with Frank so I listened to the scoop. Then Nate Tracy, who has been one of the main people outside of Bloomberg who I’ve been interacting with on this coverage he has a show called ETF prime it was the first ETF podcast he started in like while I was still in high school I think so yeah, those are all the ones I listened to on on the on the ETF Ron on a regular basis and there’s plenty of others and then I have other ones that are non ETF crypto related, like how I built this and some other fitness and running stuff. I’m a former track and field athlete so I used to be a distance runner so I still listen to a lot of things related To that, but those are the ones I listened to mostly and oh thankless. Occasionally I forgot as well. And then the daily, I listened to the daily pretty much every single day from New York Times. Nice. Well, that was way more than you were expecting. But I, I don’t listen to music. I barely listen to music and I listen to a lot of podcasts and audiobooks. That’s my number one thing that I do when I’m doing chores or driving, I commute to work every day. So that’s what I’m listening to.
Bryce Paul 40:28
Well, hey, well, hopefully, crypto 101 gets in the rotation there.
40:32
You know, you guys are on the rotation. I just figured there was no point. Oh, yeah. And you guys. You’re in my ear in my seat. But I figured there was no reason to even mention that considering where we are. But you guys are in my feed. I don’t listen to every episode. But I do listen to a decent amount. If I see a guest that I like or a topic I’m interested in. I’ll throw it on. Appreciate
Bryce Paul 40:50
- James. Hey, we wish we could talk all day. We’re coming up against the hour, man and we really appreciate your time. Where can people follow you if people want to hear more, learn more keep up with you know the big product launch that you guys are going to be doing? Where do we learn more about James safer?
41:06
Yeah, easiest way for the average person is just Twitter j s EYFFJ. Safe. It’s my first initial first few letters of my last name. A lot of people just call me Jeff, because it looks like that’s what my name is. But
Bryce Paul 41:19
and watching TV impersonators. I’ve never seen as many layers as you have.
41:23
I don’t understand why they’re impersonating me. There’s literally like over I’ve probably reported over 100 and then access Twitter made it more heart attacks.
Bryce Paul 41:31
I’ve had thinking I get a follow from James safer to my oh my god yet.
41:38
Follow you right after this. Yeah, but like, now it’s wild. How many there are out there? It’s absolutely insane. But otherwise, if you’re, if you’re, if you’re a terminal client, I can be reached on the terminal at any time. Pretty much. I’m always available on there to talk. And then we have like I mentioned trillions podcasts. We have our own show on Bloomberg. It’s on Mondays at noon, now called ETF IQ. So that’s where we’re mostly active. But you have all all of my stuff is on on the terminal. And I share some of that on my twitter as well. And yeah, that’s for that’s really funny. LinkedIn too, but I’m way less active there than Twitter.
Bryce Paul 42:12
Fantastic. Well, hey, James, thank you so much for coming on the show. appreciate all the work you’ve been doing and all the work that you have ahead of yourself. So thank you, and we’ll talk to you soon and hopefully you come back whenever you want. Anytime there’s another big update. Alright, sounds good.
42:26
Thanks for having me, guys.
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